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  • Fernandez Corp. Invested Its Excess Cash in Available-For-Sale Securities During 2014.

    Încărcat de

    Kailash Kumar
    138 vizualizări3 pagini
    The document provides an example to illustrate correcting accounting errors in inventory balances and the resulting impact on financial statements. In year 1, inventory was overstated at $580,000 instead of the correct balance of $530,000, leading to an understated cost of goods sold of $20,000 and overstated net income of $80,000. In year 2, the corrected opening inventory of $530,000 would result in a higher cost of goods sold and lower net income than reported in year 1.

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    N NKKL;

    Titlu original

    Fernandez Corp. invested its excess cash in available-for-sale securities during 2014.

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    The document provides an example to illustrate correcting accounting errors in inventory balances and the resulting impact on financial statements. In year 1, inventory was overstated at $580,000 instead of the correct balance of $530,000, leading to an understated cost of goods sold of $20,000 and overstated net income of $80,000. In year 2, the corrected opening inventory of $530,000 would result in a higher cost of goods sold and lower net income than reported in year 1.

    Drepturi de autor:

    © All Rights Reserved
    Descărcați ca XLSX, PDF, TXT sau citiți online pe Scribd
    Indicator pentru conținut neadecvat
    138 vizualizări3 pagini

    Fernandez Corp. Invested Its Excess Cash in Available-For-Sale Securities During 2014.

    Încărcat de

    Kailash Kumar
    The document provides an example to illustrate correcting accounting errors in inventory balances and the resulting impact on financial statements. In year 1, inventory was overstated at $580,000 instead of the correct balance of $530,000, leading to an understated cost of goods sold of $20,000 and overstated net income of $80,000. In year 2, the corrected opening inventory of $530,000 would result in a higher cost of goods sold and lower net income than reported in year 1.

    Drepturi de autor:

    © All Rights Reserved
    Descărcați ca XLSX, PDF, TXT sau citiți online pe Scribd
    Indicator pentru conținut neadecvat
    din 3

    Okay so let me take few more numbers to explain

    Year 1
    I am assuming
    Let sales be $ 100,000
    Opening Inventory $ 500,000
    Purchases $ 100,000
    Closing inventory $ 580,000
    (this is given in first line of question)
    Inventory Balance which should have been $ 530,000
    (580000-530000)

    Now we make a few calculations


    Wrong
    Inventory Balance $ 580,000
    (This is clearly overstated because the actual balnce in balance sheet
    should have been 530)000 but we have shown 580000

    Cost of goods sold Wrong


    Opening Inventory $ 500,000
    Add:Purchases $ 100,000
    Less:Closing inventory balance $ (580,000)
    Cost of goods sold $ 20,000
    (As you can see if take 580000 as our inventory balance my cost of goods
    sold is understated)

    Net Income Wrong


    Sales $ 100,000
    Less:Cost of goods sold $ (20,000)
    Net Income $ 80,000
    (Again you can see that if we take 580000 as our inventory
    balance net income is overstated and hence the retained earnings is overstated)

    This whole process is done for year 1

    now for year 2 because your corrected opening inventory balance will be 530000
    your cost of goods sold will be higher than year 1 (overstated)
    and hence net income will be less (understated)

    For any more information or clarification please comment


    Correct
    $ 530,000

    Correct
    $ 500,000
    $ 100,000
    $ (530,000)
    $ 70,000

    Correct
    $ 100,000
    $ (70,000)
    $ 30,000
    Part a A)
    Security qt cost fv Balance Sheet
    Lindsy Jones 900 $ 15,100 $ 21,100 Current Assets
    Poley 2000 $ 39,800 $ 41,800 Equity Investments $ 122,400
    Arnold 2000 $ 71,500 $ 59,500
    $ 126,400 $ 122,400 Income statement
    Other Expenses and losses
    Part b Unrealised holding loss $ 4,000
    Security qt cost fv 126400-122400
    Lindsy Jones 900 $ 15,100 $ 20,000
    Lindsy Jones 2000 $ 32,800 $ 40,100 B)
    Duff Co. 900 $ 16,000 $ 12,000 Balance Sheet
    Arnold 2000 $ 71,500 $ 21,800 Current Assets
    $ 135,400 $ 93,900 Equity Investments $ 93,900

    sold Income statement


    poley 2000 38000 Other Expenses and losses
    purchased Unrealised holding loss $ 37,500
    lindsay 2000 135400-93900-4000
    duff 900 Loss on sale of investments $ 1,800
    39800-38000
    Part c
    Security qt cost fv C)
    Arnold 2000 $ 71,500 $ 82,800 Balance Sheet
    Duff 450 $ 8,000 $ 6,000 Current Assets
    $ 79,500 $ 88,800 Equity Investments $ 88,800
    sold
    Lindsey 2900 40300 Income statement
    duff 500 at a loss 2700 Other Expenses and losses
    Unrealised holding loss $ 32,200
    135400-93900+79500-88800
    Loss on sale of investments $ 10,300
    15100+32800-40300+2700

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